Transcription

Michigan State Tax CommissionProperty ClassificationMCL 211.34cIssued November 2018

Table of ContentsDefinitions and Introduction . 2Residential Real Property . 3Agricultural Real Property . 4Commercial Real Property . 9Developmental Real Property . 11Industrial Real Property . 11Timber-Cutover Real Property . 11Agricultural Personal Property Classification . 12Commercial Personal Property Classification . 15Industrial Personal Property Classification . 16Residential Personal Property Classification . 17Utility Personal Property Classification. 17Appeal Procedures: . 181

Definitions and IntroductionMichigan Law MCL 211.34c requires that not later than the first Monday in March eachyear, the local assessor shall classify all assessable property in their jurisdictionalboundaries according to the definitions contained in this section.MCL 211.34c defines there are six real property classifications and five personalproperty classifications. Each of these will be reviewed in detail later in this document:Residential Real and Residential PersonalAgricultural Real and Agricultural PersonalCommercial Real and Commercial PersonalIndustrial Real and Industrial PersonalDevelopmental RealTimber Cut-over RealUtility PersonalProperty classification is necessary for the equalization process. Equalization issimply the process to ensure that all taxable property under a jurisdiction isassessed at the same percentage of market value, in Michigan 50% of true cashvalue. By definition it is the process of making property taxation equal or uniform.Equalization ensures uniformity in the level of assessment from one property to another,among the classifications within each assessment jurisdiction, among the cities andtownships in each county, and among all of the counties within the State of Michigan.Therefore, the classification of property does not affect the use of the property.Similarly, zoning of a property does not dictate the classification of a property.Property is classified according to it’s current use. The highest and best use of theproperty has been, and continues to be, the standard upon which an assessor valuesproperty but is not how its classification is determined. These are two different anddistinct issues; valuation does not drive the property’s classification.A property cannot have more than one classification. MCL 211.34c (5) states that if thetotal usage of a parcel includes more than one classification, the assessor shalldetermine the classification that most significantly influences the total valuation of theparcel. For example:A parcel of land used for residential purposes also includes a use that is agriculturalin nature, will be classified by the use that has the greatest influence on the value ofthe property. The following is a sample calculation:Agricultural Value Calculation:67 Tillable Acres at 980 per acre Equipment ShedTotal Agricultural Use 65,660 True Cash Value 10,186 True Cash Value 75,846 True Cash Value2

Residential Value Calculation:House 22,591 True Cash ValueRecreational Value (adds to residential value):173 Acres at 980 per acre 169,540 True Cash ValueTotal Residential Use: 192,131 True Cash ValueTherefore, the property in this example would be classified residential.Residential Real PropertyMCL 211.34c defines residential real property as:(i) Platted or unplatted parcels, with or without buildings, and condominiumapartments located within or outside a village or city, which are used for, or probablywill be used for, residential purposes.(ii) Parcels that are used for, or probably will be used for, recreational purposes,such as lake lots and hunting lands, located in an area used predominantly forrecreational purposes.(iii) For taxes levied after December 31, 2002, a home, cottage, or cabin on leasedland, and a mobile home that would be assessable as real property under section 2aexcept that the land on which it is located is not assessable because the land isexempt.Does there have to be a house on the property for it to be classified residential?No. As indicated above, the definition of residential property includes parcels with orwithout buildings.Recreational property is to be classified residential even though there is not ahouse on the property or I don’t live there?There is no separate classification for recreational property. Lands whose primary useis for recreational activities such as hunting, fishing, camping, snowmobile use,mushroom hunting, photography, bird watching, and other recreational pursuits areproperly classified as residential.What about my cottage or hunting camp?A vacation cottage or hunting camp is a recreational property and should be included inthe residential classification.A hunting or fishing camp owned by an individual or a group of individuals is arecreational property.These properties should be included in the residentialclassification provided a fee is not charged to the users of the property.3

What about a small apartment building?A single housing unit or single structure consisting of four or less subunits is generallyincluded in the residential classification.My house is used as a bed and breakfast. Should the classification be residentialor commercial?Houses used as Bed and Breakfast establishments are sometimes classified residentialand sometimes classified commercial. If the main use of the house is as a privateresidence and the bed and breakfast is only a minor use, the property should beclassified residential. If the primary use is to generate income similar to a motel, theproperty should be classified commercial.Agricultural Real PropertyMCL 211.34c defines agricultural real property as:Agricultural real property includes parcels used partially or wholly for agriculturaloperations, with or without buildings. For taxes levied after December 31, 2002,agricultural real property includes buildings on leased land used for agriculturaloperations. If a parcel of real property is classified as agricultural real property and isengaged in agricultural operations, any contiguous parcel owned by the sametaxpayer, that is a vacant parcel, a wooded parcel, or a parcel on which is located 1or more agricultural outbuildings that comprise more than 50% of the taxable valueof all buildings on that parcel as indicated by the assessment records for the localtax collecting unit in which that parcel is located, shall be classified as agriculturalreal property. Contiguity is not broken by a boundary between local tax collectingunits, a section boundary, a road, a right-of-way, or property purchased or takenunder condemnation proceedings by a public utility for power transmission lines ifthe 2 parcels separated by the purchased or condemned property were a singleparcel prior to the sale or condemnation. For purposes of this subsection, contiguityrequires that the parcel classified as agricultural real property by reason of itsagriculture use and the vacant parcel, wooded parcel, or parcel on which is located 1or more agricultural outbuildings must be immediately adjacent to each other,without intervening parcels that do not qualify for classification as agricultural realproperty based on their actual agricultural use. It is the intent of the legislature that ifa parcel of real property is classified as agricultural real property and is engaged inagricultural operations, any contiguous parcel owned by the same taxpayer, that is avacant parcel, a wooded parcel, or a parcel on which is located 1 or moreagricultural outbuildings that comprise more than 50% of the taxable value of allbuildings on that parcel as indicated by the assessment records for the local taxcollecting unit in which that parcel is located, shall be classified as agricultural realproperty even if the contiguous parcels are located in different local tax collectingunits. Property shall not lose its classification as agricultural real property as a resultof an owner or lessee of that property implementing a wildlife risk mitigation actionplan. As used in this subdivision:(i) "Agricultural outbuilding" means a building or other structure primarily used foragricultural operations.4

(ii) "Agricultural operations" means the following:(A) Farming in all its branches, including cultivating soil.(B) Growing and harvesting any agricultural, horticultural, or floricultural commodity.(C) Dairying.(D) Raising livestock, bees, fish, fur-bearing animals, or poultry, including operatinga game bird hunting preserve licensed under part 417 of the natural resources andenvironmental protection act, 1994 PA 451, MCL 324.41701 to 324.41712, and alsoincluding farming operations that harvest cervidae on site where not less than 60%of the cervidae were born as part of the farming operation. As used in thissubparagraph, "livestock" includes, but is not limited to, cattle, sheep, new worldcamelids, goats, bison, privately owned cervids, ratites, swine, equine, poultry,aquaculture, and rabbits. Livestock does not include dogs and cats.(E) Raising, breeding, training, leasing, or boarding horses.(F) Turf and tree farming.(G) Performing any practices on a farm incident to, or in conjunction with, farmingoperations. A commercial storage, processing, distribution, marketing, or shippingoperation is not part of agricultural operations.(iii) "Project" means certain risk mitigating measures, which may include, but are notlimited to, the following:(A) Making it difficult for wildlife to access feed by storing livestock feed securely,restricting wildlife access to feeding and watering areas, and deterring or reducingwildlife presence around livestock feed by storing feed in an enclosed barn,wrapping bales or covering stacks with tarps, closing ends of bags, storing grains inanimal-proof containers or bins, maintaining fences, practicing small mammal androdent control, or feeding away from wildlife cover.(B) Minimizing wildlife access to livestock feed and water by feeding livestock in anenclosed area, feeding in open areas near buildings and human activity, removingextra or waste feed when livestock are moved, using hay feeders to reduce waste,using artificial water systems to help keep livestock from sharing water sources withwildlife, fencing off stagnant ponds, wetlands, or areas of wildlife habitats that pose adisease risk, and keeping mineral feeders near buildings and human activity or usingdevices that restrict wildlife usage.(iv) "Wildlife risk mitigation action plan" means a written plan consisting of 1 or moreprojects to help reduce the risks of a communicable disease spreading betweenwildlife and livestock that is approved by the department of agriculture and ruraldevelopment under the animal industry act, 1988 PA 466, MCL 287.701 to 287.746.What if I own a parcel that is contiguous to my farm but it is vacant?If a parcel of real property is classified as agricultural real property and is engaged inagricultural operations, any contiguous parcel owned by the same taxpayer, that is avacant parcel, a wooded parcel, or a parcel on which is located one or more agriculturaloutbuildings that comprise more than 50% of the taxable value of all buildings on thatparcel as indicated by the assessment records for the local tax collecting unit in whichthat parcel is located, is also classified as agricultural real property.5

How is contiguity defined?Contiguity is not broken by a boundary between local tax collecting units, a sectionboundary, a road, a right-of-way, or property purchased or taken under condemnationproceedings by a public utility for power transmission lines if the two parcels separatedby the purchased or condemned property were a single parcel prior to the sale orcondemnation. Contiguity requires that the parcel classified as agricultural real propertyand the vacant parcel, wooded parcel, or parcel on which is located one or moreagricultural outbuildings must be immediately adjacent to each other, withoutintervening parcels that do not qualify for classification as agricultural real propertybased on their actual agricultural use.What if the parcels are in different tax collecting units?It is the intent of the legislature that the parcel shall be classified as agricultural realproperty even if the contiguous parcels are located in different local tax collecting units.What is an agricultural operation?Agricultural operations include:Farming in all aspects that include the cultivating of soil.Growing and harvesting any agricultural, horticultural, or floricultural commodity.Dairy farming.Raising livestock, to include, but not limited to, cattle, sheep, new world camelids,goats, bison, privately owned cervids, ratites, swine, equine, poultry, aquaculture,and rabbits. Livestock does not include dogs and cats.Raising bees, fish, fur-bearing animals, or poultry.Operating a game bird hunting preserve licensed under part 417 of the naturalresources and environmental protection act.Farming operations that harvest cervidae on site where not less than 60% of thecervidae were born as part of the farming operation.Raising, breeding, training, leasing, or boarding horses.Turf and tree farming.Performing any practices on a farm incident to, or in conjunction with, farmingoperations.Commercial storage, processing, distribution, marketing, or shipping operations are notpart of the agricultural classification. Gardening and woodlot/forest management arealso not considered agricultural for classification purposes.Are there minimum size requirements to be classified agricultural?There are no minimum size or income requirements for the agricultural classification.For instance, viable agricultural operations growing herbs or mushroom crops arepossible on just a few acres of land.6

My property is zoned agricultural, so I should automatically be classifiedagricultural, right?Property that is zoned agricultural may not necessarily be classified as agricultural.While the zoning of a particular property may be an influencing factor, the zoning doesnot dictate the classification.If my property is not classified agricultural does that mean I can’t farm anymore?The classification of your property has nothing to do with your ability or “right” to farm.Classification is for property tax equalization purposes and does not dictate the use ofthe property.What is the benefit to my property being classified agricultural?Property that is classified agricultural is exempt from certain school taxes (18 mills ofschool operating) and is the same benefit as a homestead or principle residenceexemption.If my property is not classified agricultural is there a way to still be exempt fromthe 18 mills?Yes, your property may be eligible for the Qualified Agricultural Program Exemption.This program is explained in detail in a STC publication available on our Web site atwww.Michigan.gov/statetaxcommission.If my property is in a federal set aside program, that would cause it to beclassified agricultural. Correct?The inclusion of some or all of the acreage of a property in a federal set aside programdoes not necessarily mean that the property should be classified as agricultural.If the property is in an area of heavy residential or recreational use and the market foragricultural property is limited or nonexistent, the residential classification may bedetermined as the most appropriate.If the property is under active cultivation or other agricultural use and the property is inan area of heavy residential or recreational use and the market for agricultural propertyis limited or nonexistent, developmental may be the appropriate classification.Should property in the PA 116 program be classified agricultural?Inclusion of land in the Farmland and Open Space Preservation Act (P.A. 116) does notnecessarily mean the property should be classified as agricultural.There are situations in which a property subject to a farmland development rightsagreement could be classified other than agricultural – for example:7

A farm in the path of immediate development that has a market value in excess of itsvalue in current use may be classified other than agriculture. The land could bepurchased with the intent being for commercial or residential use with the purchaserwaiting for the agreement to expire.A farm with a short period left on the agreement that is in the path of residentialdevelopment. It could qualify for a residential classification because it probably willbe used for residential purposes in the immediate future.Under certain circumstances the agreement can be relinquished. One of thesecircumstances is when a local governing body determines that relinquishment is inthe public interest and it has been zoned commercial or industrial for the precedingthree years.What is the definition of tree farming?Tree farming includes growing nursery stock for wholesale or retail markets as well asChristmas trees for the holiday wholesale or retail markets. Tree farming typicallyincorporates the cultivating of land, planting seedlings, periodic removal of weeds andgrasses and protecting the stock from insects, and other harmful pests. Nursery stockincludes trees being grown for replanting for a landscaping, erosion control practice, orfor stocking or restocking a timber land property.What about a commercial orchard?A commercial orchard is an agricultural operation.If I am harvesting for the value of the wood is that tree farming?Tree farming does not include a forest or woodlot that will eventually be harvested forthe value of the wood as lumber or pulp. Further clarification of the difference betweentree farming and forest or woodlands is discussed in Attorney General Opinion Number5702 dated May 6, 1980 (see appendix).What about Maple Syrup operations?Property with a significant number of maple syrup trees is an agricultural use. Howeverthe land devoted to the processing and bottling of maple syrup is not part of theagricultural classification. Assessors will refer to MCL 211.34c (5) for guidanceregarding multiple classifications on a single parcel. According to MCL 211.9, personalproperty used in agricultural operations is exempt. Agricultural operations are definedto include collecting, evaporating, and preparing maple syrup if the owner of theproperty has 25,000.00 or less in annual gross wholesale sales.What is included in the definition of raising bees?Beekeepers and/or Honey Producers include:Hobbyists (less than 25 colonies)8

Sideliners (25 – 300 colonies)Commercial (300 or more colonies)Hobbyists generally produce for themselves, relatives and friends. Sideliners producehoney for sale to consumers and processors. Commercial producers generally producehoney for sale to consumers, processors and distributors of honey and honey products.If I am a hobbyist can my property be classified agricultural?While raising bees is an agricultural activity, raising them as a hobby would usually notresult in being classified agricultural. Sideliners are generally a unit of other agriculturaloperations. Commercial producers may best be classified Agricultural although thecommercial storage, processing, distribution, marketing or shipping portions of theoperation are not agricultural.What is a hobby farm and are they classified agricultural?Hobby farms are not generally part of the agricultural class.“Hobby farms” usually consist of a home, a few acres (in rare occasions many acres),and out buildings. They frequently include the raising of livestock which are being usedby the property owner such as horses, a few cows, sheep or goats, chickens forhousehold use (meat and eggs), or a small fishpond. Occasionally excess producefrom a garden may be sold to a list of clients or at a roadside stand.Small orchards and gardens used for family consumption are common on the hobbyfarm. In many cases the hobby farm may have been a part of a past agriculturaloperation. The farmstead may have been sold or the land may have been sold, but inany case, the property value is mainly in the residential property.What about a captive cervidae operation?The raising of captive cervidae for sale as breeding stock or for the sale of the meat to astore is an agricultural activity. Habitat manipulation and the feeding of wild cervidae toencourage cervidae to remain in or visit an area to assist in the viewing and/or huntingof the animals is not an agricultural activity.What if an owner implements a wildlife mitigation action plan?Statute indicates that property shall not lose its classification as agricultural realproperty as a result of an owner or lessee of that property implementing a wildlife riskmitigation action plan. These projects are to assist in the reduction of risk of a spreadinga communicable disease between wildlife and livestock and are done with the approvalof the Department of Agriculture.Commercial Real PropertyMCL 211.34c defines Commercial Real Property as:9

Commercial real property includes the following:(i) Platted or unplatted parcels used for commercial purposes, whether wholesale,retail, or service, with or without buildings.(ii) Parcels used by fraternal societies.(iii) Parcels used as golf courses, boat clubs, ski areas, or apartment buildings withmore than 4 units.What if I have a small business in my house?When a small part of a house is used for a commercial or retail operation, and thehouse is in a residential area, the property will usually be classified residential.What if my business is in a building that at one time was a residence?Many areas have structures that were built for residential use but are now used ascommercial, office, or retail space. These parcels should generally be included in thecommercial classification.What if my business is on the same property as my home?The heavy equipment repair shop of a contractor, logger, or trucker located on the sameproperty as the homestead will require the assessor to determine the value of each use.See MCL 211.34c (5) and the discussion of multiple uses of a property.This also applies to offices, storage or warehouse facilities, fabrication areas, and retailareas in conjunction with homestead properties.What about a pay to hunt operation?If 60% or more of the cervidae were born and raised on site, the property is to beclassified agricultural. If less than 60% were born and raised on site, a fee is paid tohunt, and this is the predominant use of the property, then it is classified commercial.I have a fishing camp where I rent out rooms, gear and boats.property be classified commercial?Would thisFish camps that include lodging and/or may include the rental of fishing gear and boatsshould be classified in the commercial class. If the property includes the owner'sresidence, the total value of each use must be calculated to determine the properclassification.If the residence is worth 200,000 and the commercial uses are worth only half that, theland would be classified residential.What about a youth day camp or residential camp?Youth activity day camps and residential camps that are not part of an exemptorganization should be included in the commercial classification. Examples of this type10

of property include Eco-adventure camps, nature retreats, sport camps, music camps,and childcare camps. Examples of similar camps that are frequently exempt would beBoy Scout and Girl Scout camps, YMCA day camps, and Church camps.Developmental Real PropertyMCL 211.34c defines developmental real property as: parcels containing more than 5acres without buildings, or more than 15 acres with a market value in excess of its valuein use. Developmental real property may include farm land or open space land adjacentto a population center, or farm land subject to several competing valuation influences.parcels containing more than 5 acres without buildings, or more than 15 acres with amarket value in excess of its value in use. Developmental real property may includefarm land or open space land adjacent to a population center, or farm land subject toseveral competing valuation influences.The developmental classification is normally used in areas of changing use nearsignificant population centers.Industrial Real PropertyMCL 211.34c defines industrial real property as:Platted or unplatted parcels used for manufacturing and processing purposes, withor without buildings.(ii) Parcels used for utilities sites for generating plants, pumping stations, switches,substations, compressing stations, warehouses, rights-of-way, flowage land, andstorage areas.(iii) Parcels used for removal or processing of gravel, stone, or mineral ores.(iv) For taxes levied after December 31, 2002, buildings on leased land used forindustrial purposes.(v) For taxes levied after December 31, 2002, buildings on leased land for utilitypurposes.Timber-Cutover Real PropertyMCL 211.34c defines timber-cutover real property as: parcels that are stocked withforest products of merchantable type and size, cutover forest land with little or nomerchantable products, and marsh lands or other barren land. However, when a typicalpurchase of this type of land is for residential or recreational uses, the classificationshall be changed to residential.What if I bought the land to hunt or camp on?When a typical purchase of this type of land is for residential or recreational uses, theclassification shall be changed to residential.11

How do we decide if our property should be timber-cutover or not?In determining if a wooded parcel should be classified as timber-cutover or anotherclassification, you need to look at the use of the property.Some questions an assessor may ask before determining that a parcel should beclassified as timber-cut over are:Does the property have a history of timber sales?Does the owner have a written forest management plan?Does the property owner keep a business journal with records of expenses, receipts,timber additions, and removal?Does the owner complete IRS Form T (Timber)?Frequently, an indication that wooded lands should be classified as other than timbercutover is when there are buildings on the land, such as a home, cottage, or a huntingand fishing camp.However, this is not always the case. For example, there may be a building on theproperty that is used to store timber-harvesting equipment. Or the total usage of aparcel may include more than one classification, but the timber-cutover use mostsignificantly influences the total valuation of the parcel.What about marshland or sand dunes?Marshlands, sand dunes, and other "barren land" that is in areas that cannot be usedfor recreational or residential purposes are generally included in the timber-cutoverclassification.Agricultural Personal Property ClassificationMCL 211.34c defines agricultural personal property as: any agricultural equipment andproduce not exempt by law.MCL 211.9 provides a specific exemption for agricultural personal property:Property actually used in agricultural operations and farm implements held for saleor resale by retail servicing dealers for use in agricultural production. As used in thissubdivision, "agricultural operations" means farming in all its branches, includingcultivation of the soil, growing and harvesting of an agricultural, horticultural, orfloricultural commodity, dairying, raising of livestock, bees, fur-bearing animals, orpoultry, turf and tree farming, raising and harvesting of fish, collecting, evaporating,and preparing maple syrup if the owner of the property has 25,000.00 or less inannual gross wholesale sales, and any practices performed by a farmer or on a farmas an incident to, or in conjunction with, farming operations, but excluding retailsales and food processing operations. Property used in agricultural operationsincludes all of the following:12

(i) A methane digester and a methane digester electric generating system if theperson claiming the exemption complies with all of the following:(A) After the construction of the methane digester or the methane digester electricgenerating system is completed, the person claiming the exemption submits to thelocal tax collecting unit an application for the exemption and a copy of certificationfrom the department of agriculture that it has verified that the farm operation onwhich the methane digester or methane digester electric generating system islocated is in compliance with the appropriate system of the Michigan agricultureenvironmental assurance program in the year immediately preceding the year inwhich the affidavit is submitted. Three years after an application for exemption isapproved and every 3 years thereafter, the person claiming the exemption shallsubmit to the local tax collecting unit an affidavit attesting that the department ofagriculture has verified that the

mushroom hunting, photography, bird watching, and other recreational pursuits are properly classified as residential. What about my cottage or hunting camp? A vacation cottage or hunting camp is a recreational property and should be included in the residential classification.